EUR/USD Forecast: Dovish Powell could trigger a rebound ahead of the weekend
- EUR/USD dropped to its lowest level since mid-June below 1.0800.
- Near-term technical outlook shows that the pair is turning oversold.
- FOMC Chairman Jerome Powell will deliver opening remarks at the Jackson Hole Symposium.
EUR/USD came under renewed bearish pressure and dropped to its weakest level in 10 weeks below 1.0800 on Friday. The pair's near-term technical outlook points to oversold conditions but investors are likely to ignore technical conditions when assessing FOMC Chairman Jerome Powell's comments on the policy outlook.
The broad-based US Dollar strength weighed heavily on EUR/USD on Thursday. While speaking on the sidelines at the Jackson Hole Symposium, Boston Federal Reserve President Susan Collins and Philadelphia Fed President Patrick Harker both said that the Fed could hold rates steady for the rest of the year. They have, however, refrained from commenting on the timing of a policy reverse next year. Meanwhile, the sharp decline witnessed in Wall Street's main indexes allowed the USD to continue to outperform its rivals.
Euro price in the last 7 days
The table below shows the percentage change of Euro (EUR) against listed major currencies in the last 7 days. Euro was the weakest against the Australian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.95% | 1.30% | 0.29% | -0.22% | 0.24% | 0.30% | 0.94% | |
| EUR | -0.94% | 0.36% | -0.64% | -1.17% | -0.72% | -0.63% | 0.01% | |
| GBP | -1.32% | -0.36% | -1.02% | -1.53% | -1.06% | -0.98% | -0.36% | |
| CAD | -0.29% | 0.66% | 1.00% | -0.51% | -0.07% | 0.01% | 0.65% | |
| AUD | 0.22% | 1.16% | 1.51% | 0.51% | 0.44% | 0.52% | 1.15% | |
| JPY | -0.24% | 0.73% | 1.10% | 0.06% | -0.47% | 0.04% | 0.72% | |
| NZD | -0.30% | 0.64% | 0.99% | -0.03% | -0.53% | -0.08% | 0.61% | |
| CHF | -0.94% | -0.01% | 0.36% | -0.66% | -1.16% | -0.72% | -0.64% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Markets remain cautious early Friday, helping the USD hold its ground. In case Powell confirms that they will keep the rates unchanged for the rest of the year, the USD could come under selling pressure. According to the CME Group FedWatch Tool, markets are currently pricing a nearly 40% probability that the Fed will opt for one more 25 basis points (bps) rate hike by December.
On the other hand, the USD rally could pick up steam in the American session if Powell leaves the door open for another rate increase, citing tight labor market conditions and stubborn core services inflation.
EUR/USD Technical Analysis
EUR/USD was last seen trading near the lower limit of the descending regression channel coming from mid-July at 1.0770. In the meantime, the Relative Strength Index (RSI) indicator on the 4-hour chart declined slightly below 30, highlighting the oversold conditions.
In case EUR/USD stages a rebound on a dovish Powell tone, 1.0800 (psychological level, mid-point of the descending channel) aligns as immediate resistance before 1.0850-1.0860 (50-period Simple Moving Average (SMA), upper limit of the descending channel) and 1.0900 (psychological level).
On the downside, 1.0740 (static level from June) and 1.0700 (psychological level) could be set as next bearish targets if the USD continues to gather strength following Powell's speech.
Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
